'Amazon Laws' and Taxation of Internet Sales: Constitutional Analysis [November 28, 2014]   [open pdf - 250KB]

"As more purchases are made over the Internet, states are looking for new ways to collect taxes on online sales. There is a common misperception that the U.S. Constitution prohibits states from taxing Internet sales. This is not true. States may impose sales and use taxes on such transactions, even when the retailer is outside the state. However, if the seller does not have a constitutionally sufficient connection ('nexus') to the state, then the seller is under no enforceable obligation to collect the tax and remit it to the state. The purchaser is still generally responsible for paying the tax, but few comply and the tax revenue goes uncollected. Nexus is required by two provisions of the U.S. Constitution: the Fourteenth Amendment's Due Process Clause and the Commerce Clause. […] Notably, under its power to regulate commerce, Congress may choose a different standard than physical presence, so long as it is consistent with other provisions of the Constitution, including due process. Congress has not used this authority to provide a different standard, although the Senate passed legislation to do so in May 2013 (S. 743, Marketplace Fairness Act). In recent years, some states have enacted laws, often called 'Amazon laws' in reference to the Internet retailer, to try to capture uncollected taxes on Internet sales and yet still comply with the Constitution's requirements. […] On December 8, 2014, the U.S. Supreme Court is scheduled to hear oral arguments on whether the Taxpayer Injunction Act applies in this case (Direct Marketing Association v. Brohl). If the Court rules that the act does apply, then constitutional challenges to Colorado's law, and likely other state 'Amazon laws,' could only be heard in state court."

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CRS Report for Congress, R42629
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